A suspected terrorist who killed a man and took a woman hostage in an up-market suburb of Melbourne late Monday had arranged to meet her through an escort service.

Police are treating the deadly siege as an “act of terror”.

The fatal standoff, which ended in a volley of gunfire, saw a man murdered, the woman taken hostage, three officers shot, and the gunman killed by police.

The armed hostage-taker, identified by the police as Yacqub Khayre, was known by counter-terrorism police and had been on parole.

Police have this morning revealed the gunman had arranged to meet a woman at the Buckingham Serviced Apartments in Brighton after booking her services through an escort agency.

Victoria Police Commissioner Graham Ashton this morning told ABC the man shot an employee of the building before taking the woman captive.

“At the scene, when this person’s first arrived there, a man was shot, we believe, by the gunman,” Mr Ashton said. “He was an employee of the serviced apartments, so he appears to have been in the wrong place at, unluckily, the wrong time.”

Mr Ashton said Khayre had arranged to meet the woman.

“He’s arranged to meet her as part of an escort service and he’s booked her services and he’s met her there for the purposes of those services of the escort agency.”

Islamic State’s media arm has this morning released a statement claiming Khayre, who is reported to have been involved in a failed plot to attack an Australian military base, was “a soldier of ISIS”.

The siege began at Buckingham Serviced Apartments in the up-market bayside suburb of Brighton on Tuesday evening. Heavily armed police swarmed the area when a female hostage, believed to be in her 20s, made a triple-0 call telling officers she was being held hostage and a man had been killed.

The first sign of a possible terror link came when a male caller claiming to be linked to the siege called the Channel 7 newsroom in Melbourne saying: “This is for IS” and “This is for Al-Qaeda.”

Seven reported a woman was heard screaming in the background.

The siege came to a dramatic end when the gunman opened fire on police, hitting three male police officers, two of whom were hospitalised with gunshot wounds while the other was treated at the scene.